Differing Legal Opinions On Cigarette Packaging Laws

Packaging of cigarettes is a subject of controversy between cigarette makers, governments, and law-makers across the world.

In their zeal to protect consumers from the indisputably harmful effects of smoking, governments have imposed increasingly tougher restrictions on brand advertising through the cigarette pack, and mandated the placement of graphics that detail the health hazards in horrific detail, such as a hole in the neck, mouth ulcers, and damaged lungs.

Tobacco companies have been challenging these measures in courts, considering the adverse effect on their businesses.

Interestingly, courts have differed in their pronouncements in these cases.

In Australia, the country’s High Court attracted worldwide attention when it recently set aside a challenge by tobacco companies to the government’s “plain packaging” legislation, which bans the use of brand logos from cigarette packs, and instead makes it compulsory to display graphics such as those mentioned above.

Claiming that the law impinged on their intellectual property rights, tobacco giants British American Tobacco PLC (NYSEAMEX:BTI) (LON:BATS), Britain’s Imperial Tobacco, Philip Morris International Inc. (NYSE:PM), and Japan Tobacco Inc (TYO:2914) had challenged its constitutional validity in the Australian High Court.

Though the full judgment is awaited, the High Court opined by a majority out of seven judges, that the laws did not violate Australia’s constitution, effectively clearing the tables for the law to take effect from December 1 – cigarette packs and tobacco products will thereafter be sold only in plain olive green packs sans branding logos, and must display warnings of the hazards to health and graphics thereof.

This historic judgment was followed by action in Australian state, Tasmania’s legislature, which unanimously voted to ban the sale of tobacco products to any person born after 2000, as reported by the NYT. The proposal was introduced in the legislature by MP Ivan Dean, who said, “This would mean that we would have a generation of people not exposed to tobacco products.”

In fact the rationale for a ban on a sale of these products to younger people is echoed in this article by ValueWalk, on a report by The Substance Abuse and Mental Health Services Administration (SAMHA), indicating a significant decline in tobacco sales among minors in 2011. SAMHA is in charge of overseeing the implementation of the Synar Amendment in the Alcohol, Drug Abuse, Mental Health Administration Reorganization Act, prohibiting the distribution and sale of tobacco products to individuals younger than 18 years old. Susan Marsiglia Gray, head of the Synar program, states that the chances of youngsters becoming smokers in adulthood are much less if they are prevented from smoking before the age of 18.

In the U.S., an Appeals Court gave a ruling that contradicted the Australian judgment and a March decision of another court – holding that cigarette-makers need not comply with federal regulations mandating the depiction of graphic warning images. The overturning of the decision of the lower court means that the dispute might now have to be settled by the Supreme Court.

Judge Janice Rodgers Brown said the FDA “has not provided a shred of evidence” showing that the graphic labels would reduce smoking.

Legal troubles aside, cigarette makers are making good money, judging by their quarterly results.

Altria Group reported a 179 percent jump in its quarterly net profit for the second quarter, and bettered analysts’ estimates on earnings per share. Its revenues increased by 14 percent. “The brand-building activities of our tobacco companies contributed to adjusted operating companies’ income and margin growth in the smokeable and smokeless products segments,” said Marty Barrington, Chairman and Chief Executive Officer of Altria Group.

Reynolds American, Inc. (NYSE:RAI) reported a 35 percent increase in earnings for the second quarter, with profits rising from $327 million to $443 million.